Amid rising concerns over the Omicron variant of COVID-19, the Reserve Bank of India (RBI) on Wednesday decided to retain key lending rates and maintain its growth-oriented accommodative stance during the penultimate monetary policy review of FY22, in an effort to support a sustainable economic recovery.
The Monetary Policy Committee (MPC) voted unanimously to keep the repo rate — the rate at which the RBI lends to commercial banks — unchanged at 4%. The reverse repo rate was maintained at 3.35%, while the marginal standing facility (MSF) rate and the Bank Rate were kept steady at 4.25%. The decision was widely anticipated by economists and industry leaders.
In his post-policy virtual address, RBI Governor Shaktikanta Das said the economic rebound disrupted by the pandemic’s second wave is “regaining traction” but remains fragile and not yet “self-sustaining and durable.” He stressed that continued policy support is essential in the current environment, especially with risks from Omicron and renewed COVID surges in many countries.
The RBI retained its FY22 GDP growth forecast at 9.5%, with quarterly projections at 6.6% for Q3, 6% for Q4, 17.2% for Q1FY23, and 7.8% for Q2FY23. On inflation, the central bank projected CPI-based inflation at 5.3% for FY22, easing to 5% in Q1FY23 and Q2FY23.
Das added that while keeping inflation aligned with the target remains crucial, the central bank is also focused on ensuring financial conditions are adjusted in a “systematic, calibrated, and well-telegraphed manner” to avoid risks to financial stability.
Industry Reactions
The decision drew support from India Inc. FICCI President Uday Shankar said maintaining the accommodative stance was “broadly expected” given global uncertainties and the emergence of Omicron. He called the RBI’s policy “reassuring” under current conditions.
SBI Chairman Dinesh Khara welcomed the separation of rate-setting from liquidity management, calling it a balanced approach in a delicately poised growth-inflation environment. He also highlighted operational flexibility provided by RBI’s nod for capital infusion into overseas branches without prior approval, further enhancements to UPI transactions, and clarity on the LIBOR to ARR transition as positive steps.
PHD Chamber President Pradeep Multani said the accommodative stance would not only support a possible double-digit GDP growth in FY22 but also strengthen the foundations of a “sustainable and vibrant economy.”
Assocham Secretary General Deepak Sood echoed RBI’s caution, noting that recovery is gaining pace but not yet durable. He stressed the importance of continuing monetary support, especially with signs of a pick-up in private investment.
